HM Revenue & Customs (HMRC) has issued a detailed clarification on a valuable tax break for savers, confirming that many UK households could benefit from a 0% tax rate on up to £5,000 of their savings income. This rule, known as the 'starting rate for savings', is designed to help individuals on lower incomes.
Who Qualifies for the 0% Savings Tax Band?
The starting rate for savings is not automatically available to everyone. Your eligibility hinges on the level of your 'other income'. This includes earnings from employment, pensions, and any other non-savings, non-dividend income, calculated before the deduction of your Personal Allowance.
HMRC states that if your other income is £17,570 or more for the 2025/26 tax year, you will not be eligible for this 0% band. The threshold is derived from your Personal Allowance of £12,570 plus the £5,000 starting rate band.
For example, if you have a pension income of £13,000 and savings income of £2,000, your total income is £15,000. After deducting your £12,570 Personal Allowance from your pension, £430 is taxable at 20%. Crucially, your total income is below £17,570, so you qualify. The 0% starting rate can then be applied to your savings income. In this case, all £2,000 of savings would be taxed at 0%.
How the Starting Rate for Savings Works in Practice
The starting rate for savings is a band of £5,000 taxed at 0%. However, the amount of this band you can use for your savings is reduced pound for pound by your other taxable income that exceeds your Personal Allowance.
As explained by tax experts, if your non-savings taxable income is above your Personal Allowance plus the £5,000 starting rate, the band will not be available at all. The simplest way to check your eligibility is to add up your non-savings income. If it is below £17,570 (for 2025/26), the starting rate for savings will apply to some or all of your savings interest.
Using Your Personal Savings Allowance
If your savings income exceeds the amount covered by the 0% starting rate, you may then be able to use your Personal Savings Allowance (PSA). This is a separate tax-free allowance for savings interest.
Your PSA depends on your total taxable income, including your savings income:
- £1,000 if your total income is £50,270 or less (basic rate taxpayer).
- £500 if your total income is between £50,271 and £125,140 (higher rate taxpayer).
- £0 if your total income exceeds £125,140 (additional rate taxpayer).
This means a basic rate taxpayer could potentially have up to £6,000 of savings income tax-free (£5,000 starting rate + £1,000 PSA), provided their other income is low enough to qualify for the full starting rate.
HMRC's clarification serves as an important reminder for savers to review their income streams and ensure they are not overpaying tax on their savings interest, especially if they have modest earnings or pension income.
